Genuine Wealth Model
New methodology to build indicators to measure broader well-being, instead of mere material flows such as in the GDP
Excerpts from an interview on the Genuine Wealth Model
"How do you extend this to more subjective dimensions like the ones you talk about - for example, community well-being, a sense of neighborliness, that kind of thing?
MA: Well first of all, we're not saying throw the GDP out the window. We're saying that when we track expenditures as a society, we have to distinguish between those we think are contributing to the genuine well-being of society, and those for which we would say, "gee, we'd probably not want to clean up after a hurricane or an oil spill" or "that effort wasn't really progress, it was an unfortunate expenditure that we'd rather not have made". That's the first thing we have to do as a society, and right now we don't do that at all - economists don't do that and politicians don't do that with the GDP.
On the subjective side of quality of life, there are lots of things that don't have a monetary expression, including happiness. People would say we can begin to monetize happiness by what job loss does to your lack of productivity in the economy, and how much counseling you have to get to get over your depression and all that. There are some areas of subjective well-being that may never have a monetary expression, but we can ask people things like "what's your sense of belonging to a community?" "how's your spiritual well-being?" - we can ask those types of questions, that would expand the way we account for progress, beyond the monetary expressions of transactions.
HM: Would it be fair to split the kinds of measures you're talking about into two categories? Category one would be transactional - something like a net version of GDP or GNP, where as you say the transactions or activities which are harmful are netted out from the beneficial ones. Category two is maybe more of an indicator-based set where you're asking people or otherwise surveying or understanding properties of the physical or social world, but which are not directly linked to particular transactions.
So category two is more like a dashboard of where we are; category one is talking about the flows of transactions and activities. Is that a fair distinction?
MA: That's exactly what my Genuine Wealth model proposes. The first thing any auditor does is take inventory, and that gives you a physical counting - you can count the number of automobiles in an auto dealership, and then you can figure out what the market value is of those automobiles.
The first thing you do is you measure what you've got, in physical terms, so the Genuine Wealth model says the first thing you do is measure how many trees you have, how much agricultural land you have, how many people you have, what their skill set is, how many degrees people have...and then beyond that we can begin to measure what the market says it's worth.
So out of this new accounting system, you can derive indicators of well-being or sustainability, and those are not necessarily monetary. It's like in a financial statement you can generate price to earnings ratios for investors - same thing with this accounting. You can generate quality of life indicators from the inventory you've taken, and then begin to hopefully make better decisions than those purely based on, say, looking at only revenues or costs of a company.
HM: That's a very interesting parallel. It sounds like you have parallels with both capital statements and income statements on a financial statement, and also as you were saying those financial ratios which dig a little bit deeper into those statements and tell you whether the company is healthy or in danger. All those seem to have parallels in the Genuine Wealth model, which cover a broader range of issues.
MA: Yes - my message is that what we lack right now is a balance sheet for the nation. We basically have an income statement, and are only looking at the revenue line in the income statement, or the expenditure line. So we have no capital accounts for natural capital - for trees, and all the other things that nature provides for free.
We don't have a human capital account - we may know population but we don't know what the skill set is of the population. What are the capacities for a population or community to be flourishing? What's your diversity of skills? We don't have a social capital account, which is a sense of belonging or a sense of trust with each other, and relationships with each other.
So it's like flying a 747 - I've told the chief economist of one of the big banks in Toronto this years ago - with three instruments on, when you know it's way more complicated. We don't have a complete dashboard, we don't have a balance sheet, and when economists say "oh that's OK"...would you say that to any large company's CEO or board of directors, that we don't have a balance sheet?
HM: One challenge would be, I suppose, that these kinds of assessments would work or be applicable over multiple scales, all the way from global to regional, to company based, to even personal. How would you interlink those different levels of assessment - is there a way to for example automatically take all the ones at a lower level and compile them into a higher-level aggregate?
MA: In theory. Right now, the GDP, for example, is generated by a survey of households and businesses. That survey is only done once a year, and quarterly data is projected. So even with GDP, you're only measuring a subset of society, and then of course scaling that up and saying well, if we think our sample size is right, then we can just scale it up to the number of citizens and assume that represents the actual economic flows.
We could do the same with this accounting system. We can, for example, expand our household surveys to include some of these other attributes of trust and belonging. And in some cases in Canada, with Statistics Canada, we already do what's called a General Social Survey - in the US they have similar surveys. We can begin to track how people use their time - we've been doing that in Canada since the mid-70's with time-use surveys.
What I'm saying is that a lot of the data already exists. Some of it's incomplete, but what we're talking about is creating a consolidated accounting system, if you like. I've done it with corporations. Are they ready for it yet? Not necessarily, but we're bringing everybody to the table and saying, you're collecting data already, what we're going to show you is how to consolidate this, so that we can tell a story that's more than just financial performance.
So again, this can be scaled from the household, to the enterprise level, and then of course to the municipal or macro-economic level of governance.
HM: So the data partially exists, but it's more a matter of building a system which will link it together. But who do you see being the people or groups who would make that happen?
MA: Well, it primarily would be the statistical agencies: Statistics Canada, the Bureau of Economic Analysis in the US. Those existing institutions would be either redesigning the surveys they currently use, or seeing how they're closely inter-related - basically working on what already exists, and creating a different "state of the nation" type reporting that would balance the economic performance with social and environmental indicators of well-being.
HM: It sounds good, but what do you see as being the path to implementation? You're talking about the end state, but what would some intermediate goals be from here to there?
MA: Intermediate goals would be to just develop the first preliminary set of accounts, if you like. Right now, the treasurer or the finance minister is simply reporting on economic performance. Now the treasurer could also be talking about what's happening in air quality and water quality, whether water aquifers in the nation are healthy, income inequality which is the biggest indicator of society's human health, and suddenly the conversation - the news in the morning is different than simply listening to the stock market report.
Media could get involved, so the morning news doesn't end with just the hockey or the football scores - it ends also with financial market updates, and with some type of suite of indicators on quality of life. And then the conversations change at the dinner table, and in the coffee shops - it's creating awareness. What happens, though, is most people couldn't care less about the stock market report. I don't care - I'm an investor, but I don't really listen. I care about my portfolio, but even then...most people are bewildered by what all this data means.
And I think what it creates is a new awareness. I think if we measure what matters, which is what Kennedy was saying, then people may be more engaged. They're more conscious, and they're bringing that consciousness into their workplaces, to the dinner table, with their family, and with their neighbors.
HM: That's interesting. So you're really talking about a sort of co-evolutionary process, where once the indicators are there, even if in a rough form, they'll probably then be picked up by media or other outlets. That probably will raise consciousness, which will feed back to the indicators and make them more likely to be accelerated - a virtuous cycle.
MA: That's right. Behind all this data is someone's real experience, right? There's a story. Data is boring unless it comes alive, and the only way it can come alive is connecting it to someone's experience.
If you're talking about domestic violence, for example, why is domestic violence going up? Is it because more people are aware that services exist to call? There's a story there. Why is domestic violence rising at the same rate as GDP right now? Does it mean there's a correlation? Not necessarily, but it's interesting - something people like asking, "so what's going on here?" So the conversation begins, right?" (http://www.worldchanging.com/archives/008020.html)
HM: Another Canadian initiative is the Canadian Index of Well-being, which I understand has been happening for a while now. Could you give us a sense of where you see that going, and its value?
MA: The Canadian Index of Well-being (CIW) started several years ago after we released our Alberta Genuine Progress Indicator in 2001. Charles Pascal of the Atkinson Foundation in Toronto, which is funding this initiative, saw that our work had hit a nerve - he said, my vision is to help change the conversations of the water coolers of the nation, and the coffee shops of the nation...
So what we're trying to do with the CIW is to provide Canadians with a way of measuring what matters, or what we think matters. That's not always easy, because as experts we have to pick what indicators we're going to report on. And how do you balance that with what Canadians might say about their values and quality of life?
This is an attempt to measure the quality of the natural environment, economic well-being, health, and community well-being and vitality. It's probably the most ambitious project we know on the planet right now to measure well-being at a broad societal level, and ultimately get Canadians to expand the conversation.
HM: And in terms of the sustainability of this effort, would it be something which would be taken up by government, or funded by Atkinson, or...?
MA: Well, the initial investment is by Atkinson. Joseph Atkinson was the founder of the Toronto Star newspaper, which is the largest independent newspaper in Canada. But we're working closely with government - with Statistics Canada, with Environment Canada, with other government ministries, because we want them to support ongoing inventory, data collection, and analysis.
So the CIW is being developed by independent researchers, including myself on the ecosystem health report. The beauty of being independent is that we have the flexibility of saying things that wouldn't be as easy to say when you're sitting in government, accountable to a minister. Again, we're working closely with the government agencies - they're reviewing our reports and hopefully going to provide the data down the road. Ideally we'd like this to be a non-partisan kind of initiative." (http://www.worldchanging.com/archives/008020.html)
In Mark Anielski's book, The Economics of Happiness